What happens if there’s no Brexit trade deal?

News from Brussels

Source: Politico, 2020-10-02

Brexit talks grind on as the clock counts down to the end of the transition.

The last formal round of talks between the U.K. and the European Union on their future relationship ended Friday 2 October and the following day Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ordered their teams to keep talking. While both sides have consistently said they are keen to strike a deal, several areas of disagreement remain.

Added to that, the relationship between the two has been further poisoned in recent weeks by the U.K.'s decision to put forward domestic legislation that would give ministers powers to change aspects of the Withdrawal Agreement — the divorce deal agreed by Brussels and London last year — that the government concedes would breach international law. The EU on Thursday 1 October announced it was beginning the process of legal action against the U.K. and gave London until the end of October to respond.

Even if a deal is struck, it then has to be ratified by parliaments on both sides. Chief EU negotiator Michel Barnier and a number of others on the EU side have indicated this might not be straightforward if the U.K.'s Internal Market Bill is still in play.

While neither side has walked away from talks yet, both say they are simultaneously preparing for the possibility that no agreement is struck in time. But what would that mean in practice?

POLITICO walks you through implications for key policy areas and explains how the resulting problems could be resolved.

Tariffs

How bad could it be? 

What happens immediately?

Free trade between the EU and U.K. ends on January 1, 2021 — and both sides fall back on World Trade Organization terms. The U.K. has set out its Global Tariff Schedule for imports from the EU (as well as all other nations it has no trade deal with) and would be subject to the EU Common External Tariff for exports to the EU.

  • The administrative burden of tariffs, in addition to new customs checks, risks having an impact on food supplies — in particular those heading to the EU, because firms importing goods to Britain will be able to defer tariff payments and some customs administration for the first six months.
  • The additional costs of tariffs and delays will likely create problems for companies, supply chains and retailers in almost every sector of the economy.
  • Prices in shops will inevitably rise as a result, and some businesses could go bust.

What can they do about it? 

The two sides would have to negotiate a trade deal to avoid the new tariffs. How quickly that might happen would likely depend on the political context and how trade talks broke down during the transition period. Once Britain is fully out of the European Union, the two sides could, of course, start new trade discussions at any time — provided they agree.

— Emilio Casalicchio

Customs checks

How bad could it be? 

What happens immediately?

  • U.K. goods entering the EU will face full customs controls, including customs declarations, animal product health paperwork and some border checks. Most of that paperwork will be required whether or not there is a deal.
  • EU goods entering the U.K. will not face full customs administration for the first six months under a phased-in approach, but the requirements will ramp up between January and July 2021.
  • Port infrastructure and staff in Britain could be overwhelmed with the mass of new processing, leading to disruption.
  • Trucks will be expected to complete paperwork before heading to the border, but there are fears that firms will not adequately prepare, leading to queues of 7,000 trucks in Kent that could last for two days, by the U.K. government’s own admission.

What can they do about it? 

The two sides could continue to negotiate a free-trade agreement, which could reduce the need for some paperwork, but is unlikely to make a lot of difference given the U.K. has decided to leave the EU's customs union.

Businesses are expected to prepare to avoid disruption by registering for overseas trading numbers, checking what they will need to pay and familiarizing themselves with new electronic platforms (which the U.K. government is yet to unveil).

New facilities are being built around ports to manage disruption.

— Emilio Casalicchio

Road transport

How bad could it be? 

What happens immediately?

  • When the Brexit transition period lapses at the end of the year, so do EU Community Licenses U.K. hauliers have been using for operations to the Continent. In the absence of another arrangement, hauliers will have to rely on the multilateral quota system of the European Conference of Ministers of Transport (ECMT), which distributes a fixed number of permits. However, it’s widely acknowledged that those wouldn't come close to encompassing the number of trucks currently traveling back and forth across the Channel.
  • ECMT permits allow for cross-trade operations — meaning deliveries between countries — but not so-called cabotage operations by foreign providers within another country.

What can they do about it? 

The International Transport Forum (ITF) is currently in talks to temporarily increase the number of permits. But the Road Transport Group hasn’t reached a compromise yet and, even if it did, the system wouldn’t be enough to secure post-Brexit transport.

London previously floated reviving former bilateral agreements with EU countries and putting into place new ones. But the result would be complex; needless to say, it wouldn’t be industry’s first choice.

The road transport industry, which last week stressed that ending the transition period without a deal “is not an option for our industry,” expects both sides to put contingency measures in place that would ensure some market access.

— Hanne Cokelaere

 

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